The Auditor-General will investigate a KiwiBuild scheme in which the Government would either purchase unsold houses from developers or top up any shortfall.
The Auditor-General John Ryan confirmed the investigation in a letter to National MP and Housing spokesperson Judith Collins, who raised the issue with his office.
"I've discussed with the Auditor-General several concerns I have about the way KiwiBuild operated under former Housing and Urban Development Minister Phil Twyford," Collins said in a statement on Tuesday.
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Collins raised concerns with the Auditor-General about the Government's "suspicious-looking deal" to underwrite houses already under construction in Canterbury and Auckland.
She had questioned former Housing Minister Phil Twyford in Parliament earlier this year about the underwrite guarantee for developments, some of which she said were already built when they were signed off.
The Crown underwrite, signed off by Cabinet in August last year, meant the Government paid for any losses incurred by private developers over KiwiBuild houses that didn't sell - a scheme Collins labelled "welfare for developers".
As of May, the Government has purchased seven unsold KiwiBuild houses that didn't sell in Auckland and Canterbury. The Government underwrote 104 homes being constructed in Auckland and Canterbury by Mike Greer Homes.
Collins has brought to the attention of the Auditor-General that a KiwiBuild Cabinet paper made it clear that the underwrite was for homes sold "off the plans" and offered for sale "in the first instance" to KiwiBuild buyers.
She pointed to the underwrite of KiwiBuild apartments in Auckland's Ōtāhuhu where all of the apartments were already complete. She said council documents showed the apartments were built to plans approved before the last election.
Collins asked Twyford in April if he was aware that six months before the 2017 election, 16 of the Ōtāhuhu apartments were already pre-sold for less than $400,000, while the cheapest KiwiBuild price in the same apartment development was $550,000.
Twyford replied at the time: "That is an example of just how fast house prices were going up under the former National government."
Twyford has since been demoted and Megan Woods was announced the new Housing Minister in charge of KiwiBuild in Prime Minister Jacinda Ardern's recent Cabinet reshuffle.
The Prime Minister announced in January that KiwiBuild would be "re-calibrated" after it failed to meet its interim targets of 1000 homes by the end of the first year, instead building just 300.
The programme has seen some success near Tauranga, where 14 out of 18 homes have been sold so far in the Kaimai View subdivision development by Classic Builders.
A KiwiBuild spokesperson told Newshub last month that 123 KiwiBuild homes have sold across Northland, Auckland, Bay of Plenty, Canterbury and Otago, so far.
The Auditor-General said the investigation into KiwiBuild will be part of its annual audit of the Ministry of Housing and Urban Development.
As part of that work, auditors will review the "process by which projects are identified, scoped, and approved as part of the KiwiBuild programme".
The Auditor-General has also signalled in his future work programme "a review of the implementation of KiwiBuild along with a review of the benefits realised through the programme".
The first of these reviews is expected to be completed in 2019/20.
Woods' office has been contacted for comment.